February 23, 2016



This week in focus: Boost in budget spending pushed up retail sales

Retail sales of enterprises grew 0.1% y/y last month, having sharply improved from -12.9% y/y in Dec 2015 and being the first positive reading since Mar 2014. This uptick can be fully attributed to the spike in budget expenditures in Dec 2015, in our view. Going forward,  retail sales will likely slide back into the red already this month, returning to  sustainably positive growth rates since early 2Q 2015. Growth will be still marginal for the rest of the year.

Currency market: Some USD/UAH volatility on tax payments

FX market stays broadly unchanged. Local currency saw a temporary strengthening on Thursday (26.00/26.50 rates were spotted), driven by increased FX sales by exporters ahead of their monthly salary payouts and tax payments. As FX supply has quickly dried up, the rate went back to 26.90/27.00 by end Friday.  Part of this excessive supply was also absorbed by the NBU as the regulator announced a buy auction on Thursday. Going forward, we do not expect any sharp movements in the coming days. Risks of resumed pressure on the UAH are still high. The fate of Ukraine-IMF program will now be in focus and any negative signals in this regard will weigh on the UAH. While we assume the next disbursement might be approved in mid Mar, further delays are still possible. Political developments will also steer the market. 

Money market: Dull

Market demand for UAH OVDP is seemingly drying up. As previously, 6M and 9M maturities saw zero bids, and, unlike previous auctions, bids for 1Y notes were also absent. While MinFin would obviously like to see lower interest rates, recent volatility on the FX market will discourage banks to cut them down. Against this backdrop (and given that the budget year has just begun), it would be logical to expect lower volume of placements in the near run. As NBU started to release details on the volumes of the interbank money market, these show that placements are limited to ON transactions (yielding 20.4% p.a. on average, and averaging at only UAH 364mn during the last week). With the banking liquidity hovering close to its record highs, this might further evidence that banks have taken a risk-aversive stance in their operating activity. 

Global markets: Mixed

International Energy Agency (IEA) report said oil markets will begin to rebalance in 2016-2017 on falling shell oil output in the USA. The cut in production will be only short-lived, however, and prices should remain subdued due to enormous stocks being accumulated, the agency noted. In the meantime, Russian energy minister Novak said consultations on a preliminary deal between leading oil producers to freeze output should be concluded by Mar 1. While also engaged in the talks, Irans deputy oil minister however said his country plans to increase its daily production soon to regain market share. Eurozone private business activity increased at its weakest pace for over a year last month, potentially boosting expectations of further monetary boost from the ECB at its next policy meeting on Mar 10. China's producer prices shrank for a 47th straight month, in the wake of falling commodity markets and weak demand faced by Chinese producers. In the USA, strong inflation figures provided support for the view that the Fed could stay on track for a gradual lift of interest rates this year. 


For information: UkrSibbank_230216.pdf